SPEAKER: Welcome everybody to the 2016 Aspen Ideas Festival. This is our twelfth ideas festival and I have to say we’re so excited it is ridiculous. I could use some language that some people used this morning in the final closing about how ridiculous it is but I won’t use that. I’m going to be back in a bit but we’ve been planning this event for a year and we want to get going. So it is my great pleasure to introduce to you a friend, a trustee of the Aspen Institute, the President and CEO of the Woodrow Wilson Center for Scholars, Jane Harman and our very, very honored guest Christine Lagarde, Managing Director of the International Monetary Fund.MS. HARMAN: Good afternoon everyone. Can we please give a shout out for Kitty Boone. No way with all affection for Walter and the team, no way this could have happened without her magic. I’m delighted to be back and delighted to be part of the first act. The reason this has happened you may know something happened last week. A big vote, it wasn’t in the United States but Christine was actually coming last year and at the last minute there was a family event and she had to cancel. So we decided she would come this year. A year’s lead time, nothing would interfere with Christine and Xavier coming to Aspen, no way. Middle of last week, I get a text. There’s this vote and if it passes I may have to delay or cancel my trip to Aspen. But it probably won’t pass. I remember the day of, most people thought it had tipped and it wouldn’t pass. So at 4 a.m. on Friday the junkie that I am, I turn on my television. At 5 a.m. text from Christine. Cherie, I have two emergency meetings. I have to delay and may have to cancel my visit to Aspen. So I thought she did predict this, how sad. So I cancelled a bunch of things but headed to Aspen anyway. Landed in Aspen to find that she managed to come and has to leave early. So Walter had this brilliant idea that we would hold this event early and the 800 of you who are in the first session get the whole advantage of this and so do I.So Christine Lagarde is a dearest friend. I’m totally objective when I say she is one of the most admired women on the planet. Do we agree? She was just elected unanimously, get that, to her second five-year term as the [Managing] Director of the IMF, the International Monetary Fund. The first woman to hold that position. She also was the first woman to be Finance Minister of a G7 country. She also was the first woman to chair a major international law firm. Not bad.So the markets are opening in Asia, I believe I’m correct and there are Brexperts everywhere. A new word, I read it, I didn’t make it up--who are saying catastrophe, the UK will fall, the EU will fall, the UK has opportunities, the EU has opportunities, these countries will leave so on and so forth. The markets obviously were down on Friday. My first question to you my friend is, is Brexit a catastrophe or an opportunity or both?MS. LAGARDE: Thank you very much Jane, for this easy one. And thank you very much on behalf of my husband and myself I’d like to really thank the Aspen community. We’ve been here for less than 48 hours and we’ve only met lovely, nice, warm-hearted, welcoming, hospitable people not to mention of course Jane and Bob my friends. But really thank you so much; it feels so good to be here.Jane, what I thought I would do is just start with a few numbers and put things into perspective a little bit because there is a lot of either short memories or rush to a few conclusions which I think is not necessarily the wisest thing to do at the moment. So looking at numbers a little bit I think we have to keep in mind that the European Union, which started being constructed over 50 years ago, represents roughly 500 million people and is the largest free-market economy in the world. That’s what the UK is considering at the moment. The UK itself is a country with over 60 million people. A GDP per capita at around 45,000. A pretty good track record of economic policy in the last few years with unemployment down at about five percent. Growth ranging from 2.2 to 1.9 and up and public finance that have been largely reestablished and a good direction in terms of debt to GDP. So that’s the economic situation of that country at the moment. I’m saying that with particular purpose which will be as you will understand the questions that I have at the end of my quick look around.Second set of facts which I think are important is that on Friday as we all sort of woke up to this news which was heartbreaking for those of us who are truly Europeans and certainly it was very much my sentiment as a European. But when we woke up, we realized that first of all the markets had vastly underestimated the outcome and contrary to what I hear all the time from my teams which is essentially markets usually get it pretty right and anticipate reasonably well. On this particular occasion whether it was a book maker or the markets that was not anticipated very much which will explain something that I will say in a minute. That’s point number one.Point number two it might just be the case that the experts, much criticized including by Justice Minister Gove they just might be right and it is not necessarily going to be the best news in the world.Third, on that Friday in the course of the day there was no panic, right? And despite the fact that markets had not anticipated that vote and therefore had priced in asset values and other currency values, the fact that the UK would probably remain which led to a nice increase on the markets in the days preceding the referendum but despite that there was no panic. There was a violent, brutal, immediate massive move. The pound went down by 10 percent. It caught up a little bit later on in the day. The valuations went down in many corners and some people lost a lot of money, other people made a lot of money as is often the case when there is massive volatility. But there was not panic, and the central bankers did the job that they were prepared to do just in case which was to put a lot of liquidity on the markets so that there would be shortage of liquidity and no sort of fading away of those liquidities as we saw it on previous occasions particularly in 2008.So that’s the first take. Central bankers did their job. All groupings, organizations, imminence, policymakers came out publicly along the same lines of trying to reassure that the situation was under control and it was very much under control. We didn’t see those sort of panic moves.Now having said that, clearly what we are facing in terms of and I’m coming to your question, risk opportunities, or threats opportunities I think needs to be distinguished in terms of short term, longer term. And we have done a lot of forecast analysis as have many other institutions and our conclusions which I have shared with British public opinions not too much success was that the outcome would not be a very happy story for the British people. Both in terms of trade declining, in terms of productivity, probably declining, in terms of income, in terms of inflation and so on and so forth. But very much of that outcome which is not terribly precisely predictable is going to depend on the level of certainty or uncertainty. Predictability or lack of predictability. So I think that at this point in time, policymakers both in the UK in Europe are holding that level of uncertainty in their hands. And how they come out in the next few days is really going to drive the direction in which risk will go. Now we are hearing at the moment, and I’m not inventing it, different statements going a little bit in many directions. There is uncertainty in the political party situation in the UK both in the Labor and in the Conservative party. There is a timetable that has been announced under which this referendum which was legally of an advisory value is leading to the resignation of the Prime Minister which will only be effective at the time when he is actually replaced by his successor who will be appointed by the conservative meeting which will take place probably after the holiday which will be in the course of September. So early October, we will know who is the next leader of the conservative party. In the meantime, Prime Minister Cameron has indicated that he was not going to trigger this famous Article 50 of the European Treaty which provides for the terms under which a withdrawal can be actually notified and organized. But there has been no withdrawal from the European Union except some 30 years ago by Greenland which left from Denmark literally. There is no precedent. There is no real history of how these things happen.So certainly from our perspective as the IMF, we have very strongly encouraged and will continue to encourage the parties involved to actually proceed with this transition in the most efficient, predictable way in order to reduce the level of uncertainty which will itself determine the level of risk that we are facing. Having said that, in the long term if the decision was maintained and if the leave if effectively followed through by the withdrawal from the United Kingdom there is no doubt that it will have an economic impact on that economy and it will also have an economic impact on growth in the European Union. So policymakers are going to be in high demand to come in the most cohesive, concerted and hopefully positive way in response to the situation.Final point and I think this is something that does not apply only to the UK and the European Union and the Euro area is why and I think those are the questions that will come to the floor not just in the UK. But why is it that the populous voices sometimes based on so-called truth that they now have to retract. Why is it that those voices carry a lot more and a lot further than the voices of “experts” who are largely unanimous about the outcome and consequences of the decision. That’s a big question to ask. Is it an issue of the economic outcome? Is it an issue of the democratic process, is it an issue of the communication channels? But all those questions I think are on the table and warrant everybody’s attention.MS. HARMAN: Well there is another dimension to that for those of you and you’re all junkies so you all know this who have studied how the vote went. Millennials by a large amount voted to remain and here is just a summary of a post that many of you probably have seen which has gone viral by somebody named Nicholas. He said the Brexit vote is three tragedies. First the working classes who voted to leave will be hurt the most. Second the younger generation will have never known the full extent of lost opportunities and he says literally freedom of movement was taken away by our parents, uncles and grandparents in a blow to a generation already drowning of the debts of our predecessors. And his third point, which is searing, is that we now live in a post factual democracy and that’s exactly what you said Christine. And he asked when was the last time a prevailing culture of anti-intellectualism led to anything other than bigotry? So after you’ve absorbed that, there’s a lot of buyer’s remorse out there. Three and a half million people have signed a petition to hold another referendum. Given the fact that the formal exit isn’t triggered, do you think there is any chance that “can’t you take a joke” will be operative?MS. LAGARDE: It is really hard to speculate but the sleepy lawyer wakes up inside myself and –MS. HARMAN: I’m still asleep, my lawyer.MS. LAGARDE: But I don’t think that it’s there. Although you could argue that with an advisory capacity and the sort of general uncertainty about the timeline about the triggering point, about the two years’ timeframe within which negotiations must be conducted, there is room for revision. But I just don’t see it personally and I certainly don’t want to be quoted on that because it’s very much up in the air. And it is by the way for the UK to actually decide for itself at the end of the day and that country is the only country that can actually trigger the mechanism.MS. HARMAN: Right.MS. LAGARDE: No matter how much the EU leaders insist on it being conducted very diligently it is the UK that can trigger the Article 50.MS. HARMAN: Let me ask you about leadership in the context of Brexit. You’ve mentioned the need for a steady hand but the World Post which is part of the Huffington Post something that I think is a very good piece of journalism wrote yesterday that there are only two compelling leaders in the world. The Pope and Yo-Yo Ma. And I’m actually very partial to Yo-Yo Ma since he was once the harmonizer artist in residence at the Aspen Institute and a dear friend. But who could lead Europe through this? What steady hand is in Europe? Angela Merkel comes to mind, so do you.MS. LAGARDE: Well Angela Merkel comes to my mind for sure. But you see I think on this occasion it is going to require concerted efforts on the part of many and it is not going to be and I don’t think that it can ever be just one single leader, takes it all, drives it all. It is too multifaceted to be just the work of one single person. And whoever will be driving that bus will actually need to have all the passengers on board in order to move forward.Europe is an incredible construction, much criticized. Much too slow, very laborious on occasions but it is also an extraordinary achievement of the immediate aftermath of the second World War where countries had been at each other’s throat and millions of people had died at the hands of each other for centuries. And to actually decide that in the name of peace and prosperity they were going to establish that free market zone where product, service and people can actually move, is something that should not be wasted at all. And it is a resilient construction and a resilient territory which is unfinished and which needs to be completed. It is facing a lot of hardship, let’s face it. If you combine the legacy of the financial crisis which is still out there in some corners you look at the terrorists’ attacks which has been the victim of in the last year and a half to look at the refugee’s inflow which is arriving on the shores of many of the southern countries and moving up all the way to Sweden. If you now take this first ever attempt to withdraw when the whole process was about integration, was about coming together, it is a lot to take for a construction that was not inherited from the Westphalia Treaty but something that was only the second World War construction. But it will take more than one person but it will take certainly somebody who has the ability to bring together people for the moment a very different vested interests.MS. HARMAN: Well you mentioned terrorism and that’s my last Brexit question. It occurs to me that to quote Gerry Ford we have to be able to walk and chew gum at the same time. And as people are preoccupied with this as everyone should be certainly in Europe and I think no matter what Donald Trump says I think is a matter of great interest for the United States as well. There are preposition foreign fighters in Europe and there is Vladimir Putin up north who has already made excursions into Ukraine and is at least many NATO countries fear what else he might do. While Europe is focused on this would this be unfortunately a good opportunity for some of those folk’s attention is being paid elsewhere to conduct mischief?MS. LAGARDE: I pray that is not the case, I really do, I really do. There is certainly a great level of integration at the economic level that needs to be perfected, that needs to be completed. I think that in terms of security there has to be further work and more in depth work to be done within the European Union.MS. HARMAN: Well Christine, turning to a few other subjects and then we’ll get to audience questions. You were recently in Japan for a meeting of the G7. Every time I check because I do get these texts from you and invite you to dinner you’re in Kazakhstan or you’re going somewhere but you have been focusing, I know, in addition to Kazakhstan literally on Ukraine, Iraq, Egypt. Endemic corruption is a huge concern of yours. Just a few words about other things you are doing or you will be doing while you are also in this position managing or helping to manage the Brexit crisis.MS. LAGARDE: Thank you to asking me that question because I have to look at the future and look at it as positively as I can. In my first few years, I tried to shift a little bit together with the management team, the IMF in the direction that was a bit unconventional and not especially orthodox. We have really focused on some alternative topics that are micro critical all the same but that include the likes of climate change, what do we do about it, empowerment of women, what do we do about it, financial inclusion, what do we do about it, excessive inequality, what impact does it have on growth, and those are areas that I think actually matter enormously. Not only for macroeconomic purposes, not only to have a good and solid set of fiscal principles but also because they actually bring the level of hopefully more security, more inclusion, less inequality that actually repair or support and strengthen the chemistry of societies. This is particularly relevant at this point in time. Because I think that some of the answers, some of the analysis in relation to these topics are critical for people. I don’t think that we have communicated well enough or clearly enough leaving aside the jargon that economists and other use. But I think that I would like to continue to push the institution in that direction.Our focus is economy. Our focus is stability and I think those are the basic principles upon which societies can actually prosper and be developed. But it can only be done on solid pillars and with the principle of inclusion being first and foremost. And it is with that concern in mind that I believe that the work we have begun doing on corruption is very important. How much corruption would present in the world, anywhere between $1.5 and 2 trillion. How many countries are concerned, many. And not just the odd country down south in this sort of low income development country. Who are the victims? Generally the most exposed people. Can it be fixed? Yes. Will it take time? Yes. Will it require cohesion and leadership? Yes, of course. Will the transition from an economic point of view need careful analysis and policy advice? Absolutely. You don’t go from a nicely oiled system that is built on bribes and rigged procurement contracts to something that is transparent and where people are accountable without a degree of transition. So those are some of the areas that I would like to continue to push along with exceptional quality of research and service to the membership.MS. HARMAN: My final question is growing up in France where you a synchronized swimmer and going to the United States for a year I think at Holton Arms and being an intern for then Congressman Bill Cohen. Then this school and teaching and this flaunted law career, did you ever imagine that you would be here now in your second term as the Director of the IMF?MS. LAGARDE: No, no, absolutely not nor did I plan for that actually ever but no,MS. HARMAN: Well all I can say is aren’t we glad she’s there? So questions and one I would like to call on Kitty Boone whether she wants to be called or not I hope she’s here. She’s there because Kitty has come up with I think a great idea about Greece and I think you ought to put it to Christine Lagarde.MS. LAGARDE: I’ll take any of those.MS. BOONE: I’m now mortified. Okay here is my idea but I don’t know how to turn it into a question. Maybe you can say does this make sense, is it possible. The Greek economy is a disaster. The debt now is a huge question. Rio for the Olympic Games is a disaster. The IOC, the way they make decisions is really complicated. Could we please permanently install the Olympic Games in their home in Athens and give economy and tourism and strength and have one place that’s environmentally safe. You don’t have to build stadiums that have dust weeds right after the day and help Greece and help the world find a place in Europe that is a legitimate home for the Olympic Games. That’s my question.MS. LAGARDE: I think it is a great out of the box idea. Thank you Kitty, thank you. To the extent that it’s going to create demand which is what this economy absolutely needs it would be great. How you combine the sort of single location with the multilateral, multicounty extraordinary sort of appeal that the Olympics can have too many countries around the world is something that needs to be thought through. How you could have a good governing body that would actually supervise, make sure that there is transparency, there is accountability, there is no funny business as has occurred in the past in some places. But is a very interesting idea and you’re right. The marathon was run the first time even in Greece and the Olympic is only called the Olympic because of Mount Olympus which is actually sitting in Greece and has hosted so many fantastic athletes which was part of the healthy principles that the Greek’s very much had.MS. HARMAN: So Kitty has the first big idea of the afternoon. Other questions?MR. ABERNATHY: Bob Abernathy. Thank you for being here with us. You said a minute ago that much work needs to be done in security in Europe. What would you set for an agenda for the meeting in Warsaw next month?MS. LAGARDE: I’m totally out of my depth on that one. So I don’t pretend to have any recommendations or any lessons to those who are in the know. I was in November in Paris at the time of the attack on Bataclan. I walked the streets of Washington just recently and all I can tell is that it is going to require concerted efforts at all levels of organizations, societies and not just at the police and intelligence levels. I think people have to be adopting a different view about security themselves.MS. HARMAN: The meeting in Warsaw is a meeting of NATO members for those who don’t know. Questions, over there on the aisle.QUESTIONER: I am a Pearson Scholar. I am originally from Nigeria. In January you visited my home country and you said you advised the Nigerian Government to act with resolve, build resilience and exercise restraint. These are your three words. And with Britain leaving the EU as an emerging economy that solely depends on oil and most of our stock is tied with pounds, tied with dollars what advice do you have on an emerging economy such as Nigeria and other African countries who are battling with climate change, battling with migration and other things, thank you.MS. LAGARDE: Well first of all what I can tell you is that I was very, very pleased to see the exchange rate new policy that has been decided by the Central Bank of Nigeria. And I’m delighted that President Buhari has agreed to that change as being part of the overall Nigerian policy. I think it’s a move in the right direction. Clearly your country is a massive producer of oil. It is not the only country to some of countries that are visited earlier as you mentioned Jane, it is a country that actually has other sources of growth that is far more diversified but where resources are predominantly particularly the revenue for the state of Nigeria from oil. The fact that it is heading in the more direction of a more flexible exchange rate I think is so wise and so much better than what there was before. So I think on that front the country is heading in the right direction. Diversification of sources of growth is a critical one and I think the fight against corruption is something that President Buhari himself who was present at the London Summit against corruption has devoted his energy and efforts towards and it needs to be continued, we need to support him in helping along the way. But fighting against corruption, diversifying the economy, making sure that there is growth in the country in order to create jobs for the Nigerian population particularly the young people on the basis of a monetary policy and an exchange rate that is more variable then it was before. I think hopefully will position the country in a much better shape for the future. It is the largest economy and certainly the largest population in Africa. The rebasing of the economy is certainly demonstrated. I hope it heads in the right direction.MS. HARMAN: Over here, let’s see Elliott in the front row.MR. GERSON: This is Elliot Gerson of Aspen Institute. I’d like to return to Nicholas, the young man who wrote the letter in the Financial Times that Jane referenced that went viral. About three quarters of Britain’s under 25 voted to remain and they have the most at stake. Almost as many voted the other way who are retired and who have the least at stake. What specific message do you have for Nicholas and his young contemporaries who seem to be now in a state of national depression?MS. LAGARDE: I think many of them went to vote but many of them actually regret today that they have not for some reason. Clearly the future of their country is going to belong to them more than anybody else and I hope that they can move in a positive direction. They can be hopefully guided and I say that with trepidation because I think that we are seeing massive changes and the assumption that somebody is going to guide them is maybe very full of vanity in a way. I think there is very much a desire of I want to take my destiny in my own hands. I want to be able to communicate and I don’t really understand what those intermediaries however democratically elected and representative they’re supposed to be are going to do with my future. So I think we need to ask the right questions, try to find together the right answers. I think for the next couple of years it is going to be a difficult moment. That’s the time it will take to conduct negotiations and see under what terms the country withdraws. If it does as presumably it will and whether it will take the direction of Norway which as you know has an economic arrangement which authorizes them to actually transfer goods and services without restrictions but also requires that they pay their contribution to the European Union and that they open their space to movement of people. That would be probably for those young people the most comforting outcome. I’m not sure that it will be perfectly satisfactory to those others at the other end of the age spectrum because you end up as actually the authorities of Norway was telling me 10 days ago with paying the bill, not having a say on the regulations and forcing the regulations and opening new territories. But a Norway-like arrangement would be probably the best outcome both in economic terms and in response to the concern of Nicholas and all his friends.MS. HARMAN: Anybody in the back, then in the front right here. Just wait for the mic and identify yourself please.MS. LAZARE: Nancy Lazare. What policy advice would you give the leadership of Italy and Spain and maybe even France to reduce the odds of a referendum vote in those countries?MS. LAGARDE: I would stick to (inaudible) things and I would say put in place the policies that will actually lift economy that will create demand, that will generate growth, that will create jobs and that will bring a bit of an uplifting sentiment around the country. I’m saying that I’m sticking to (inaudible) because I think that is a really important message. What have we had so far. We’ve had terrific monetary policy authorities. The central banks have carried the burden very much on their back with little support on the part of fiscal and the part of structural reforms. I think if anything that should be a strong wakeup call to those authorities to actually drive forward that agenda that we have called the three pronged approach. Structural reforms, fiscal space used please and whatever fiscal policy you have in place make sure that they’re growth friendly and have the monetary policy in the background to continue to help and support. And that is perfectly legitimate but it cannot be on its own. So that would be my strong recommendations. Turn your country and your economy towards positive, towards demand, towards growth and make sure that instead of having 10 point something unemployment growth, unemployment rates in those territories you move the needle in the right direction, you create hope, you generate confidence.MS. HARMAN: I can’t underscore positive and hope. Just imagine if the REMAIN campaign had been based on positive and hope what the result might have been. Last question, way in the back over there.QUESTIONER: I am a British citizen both heartbroken and in mourning.MS. HARMAN: Did you vote?QUESTIONER: I am not allowed to vote because I’ve lived in America for over 14 years and they take away your vote when you’ve been expat for 14 years in the UK though I would have clearly voted to remain. My question is assuming the British government does withdraw from Europe do you expect the European Union to be very harsh not to say punishing in their negotiations as a way to dissuading other people in the domino effect that we’ve been hearing about or would you expect any form of compassion?MS. LAGARDE: I personally don’t believe in the virtue of punishment in many instances. I think encouraging, supporting people to head in the right direction is probably a lot better. Equally I recognize the dilemma that the European leadership has being overly warmhearted in those negotiations and discussion is certainly not going to help in to deal with the risk that is out there, not only of reduced growth but of potential fragmentation that would result from a contagion effect. So how they find equilibrium between being rigorous and being fair is something that I hope is best exemplified at this point in time by Chancellor Merkel who has gone on saying there is no need to be nasty with the British. I’m almost hesitant when I say the British because when I see what Nicola Sturgeon from Scotland is saying I’m concerned that we are not even talking about the British. We’re talking about very much the English, the Welsh. Ireland is going to be also a big question mark going forward. But I hope that this equilibrium point is going to be sensible enough to not harm unnecessarily and try to get a revenge against the English and others but also is not going to be encouraging for others to look for similar situations.MS. HARMAN: So on that note this is Christine and Xavier’s first visit to Aspen. Should we invite them back?

If buttercups buzz’d after the bee
If boats were on land, churches on sea
If ponies rode men and if grass ate the cows
And cats should be chased into holes by the mouse
If the mamas sold their babies
To the Gypsies for half a crown
If summer were spring
And the other way ‘round
Then all the world would be upside down!

– 17th century English children’s song

“There are decades when nothing happens, and there are weeks when decades happen.”

– Vladimir Ilyich Ulyanov, alias Lenin

“For someone will say, ‘His [Paul’s] letters are severe and forceful, but his bodily presence is weak, and his speech contemptible.’”

– 2 Corinthians 10:1 and 10

The internet, mainstream media, and Twitter are burning 24/7 with talk of Brexit. I will offer a few thoughts on Brexit at the end of the letter, but I’ll reserve any serious look at the future implications of Britain’s leaving the EU for a later letter, after I’ve had some time for reflection and analysis. I think the implications are every bit as serious as most analysts and commentators suggest, and that means the subject deserves more than reflexive punditry.

Instead, I’m going to proceed to give you an updated version of my speech from one month ago at the Strategic Investment Conference. It actually has (as you will see) more relevance today than it did a month ago. We have edited the transcript so that the speech is much shorter and tighter; and of course, going back over it, I came up with a few thoughts here and there that I would like to have inserted in the original. I like this updated version better than the transcript. Like St. Paul, I guess taking the time to organize my thoughts and perform numerous edits does improve my message.

And speaking of transcripts, those of you who buy the Virtual Pass to SIC 2016 get the audio versions of the speeches from the Strategic Investment Conference, and you also get the PowerPoints and a complete transcript of each speech and panel, plus a highlights video. That’s a package that’s almost as good as being there.

Some people drive to work or have time and prefer to listen to audios. I am one of those who prefers to read. My partners at Mauldin Economics have made it so that you can have it both ways. Plus, there are about 1,000 slides in total. It’s a pretty cool package and well worth the price. You can get the Virtual Pass by clicking here. It will be available for only a short time. Actually, management had already taken it off the website, but I told them that I was uncomfortable with putting my speech there and then not making the other speeches available, so they extended the offer for a limited period. Don’t procrastinate. And now, let’s turn to my speech.

Thinking the Unthinkable

As many of you know, I am in the process of writing a book on what the world will look like in 20 years. Much of the book is about exciting new technologies, which I’m convinced will make the world of 2036 far more exciting and wonderful than it is today. Nobody will want to go back to the good old days of 2016. But the potential wealth humanity can create seems to be counterbalanced by the amount of wealth that governments and central banks can destroy.

For the last few years I’ve been talking about the exciting changes that lie ahead in what I call the Age of Transformation. Today, we’ll look at the Dark Side of that age. We are going to talk about government and the wealth destruction that governments have the potential to unleash. We begin with a poem:

If buttercups buzz’d after the bee
If boats were on land, churches on sea
If ponies rode men and if grass ate the cows
And cats should be chased into holes by the mouse
If the mamas sold their babies
To the Gypsies for half a crown
If summer were spring
And the other way ‘round
Then all the world would be upside down!

That was an English children’s song from the 1600s and 1700s. Click here to hear it. In ages past, it was traditional for a defeated army to walk through the ranks of the victorious army. It was also traditional for the losing army to play the song of the victors. When Cornwallis surrendered for the second time to the Americans, Washington refused to let the British play an American song, so they played the children’s song “When the World Was Turned Upside Down.” At least, that’s what the legends say.

In this case, the losing army was twice as big as the winning army. Most military strategists assume that you need an army three times the size of the defending army to attack a well-fortified position. It was unthinkable to the British officers and their soldiers that they could lose. And Cornwallis might have held out, even with heavy losses, had he known that just two weeks later General Clinton and the British Navy would arrive. He would have lost of few thousand soldiers, but the English would have won the war, and the US would now be Australia, albeit much bigger and without Vegemite.

Losing was unthinkable to the British, but lose they did; and that is what we are going to talk about today: thinking the unthinkable.

If I had come on to this stage four years ago and told you, my friends, that we were going to have 40% of the world’s governmental debt at negative interest rates, $10 trillion on central bank balance sheets, and $10 trillion worth of dollar-denominated emerging-market debt, and that global GDP growth would average only 2%, unemployment would be below 5%, and interest rates would be negative in much of the world and less than 50 basis points in the US, you would have laughed me out of the room. You would have all hit the unsubscribe button. Today’s world was unthinkable a mere four to five years ago.

But now, given what has happened and what I think is likely to happen, we have to start thinking the unthinkable. When I say this, I mean in the next 2–5–10 or 20 years, not next quarter. I have great news for you, too: we are going to get through this. Yes, we face potentially disastrous problems, but we’ll survive to be better than ever. Like my friend George Friedman said yesterday, “The world is going to hell… but we’re okay.”

(Sidebar: while editing this, I decided to Google the words thinking the unthinkable. I found numerous speeches and books and articles that either had that phrase as their title or contained the words. This quote from The Weekly Standard gave me pause:

As a futurist, Herman Kahn’s job was to think about the unthinkable. And the unthinkable subject in the 1960s was thermonuclear war. Kahn’s analysis struck a nerve; going beyond consideration of how to prevent a nuclear war, he assessed how the United States could survive and win one. This step proved more than most national defense experts could bring themselves to contemplate. The use of rationalist methods to study an event of such hideous proportions was nothing short of an outrage; in fact, it earned Kahn a place in the annals of film history as the inspiration for the mad title character of Stanley Kubrick’s Dr. Strangelove.

I certainly hope I don’t inspire such a response. And I’m sure there will be people who will find some of the ideas and scenarios I am considering implausible, but I am worried that we are on a slippery slope of ideas and actions with no real way to pull back. Back to the speech.)

The Weakest Link

Before we can contemplate what might happen in the future, we have to first examine what I think of as a global economic chain with a series of weak links. I am going to argue that there are five major weak links.

The first weak link is Europe and its debt. On average, across the continent, the debt-to-GDP ratio is about 90%. It is up to 135% and will soon be a 140% in Italy. Either Europe mutualizes all its debt and Germany says, “Ja, vee vill take it,” or the debt problem will continue to worsen. If they mutualize, they can put the debt on the balance sheet of the ECB, and then all the countries of the Eurozone will pinky swear to balance their budgets in the future, giving up their national sovereignty to Brussels.

A European treaty is actually what my teenage girls called a pinky swear. They mean it when they sign those treaties, but the problem is actually adhering to the treaty.

Today you heard Anatole Kaletsky tell us that Europe’s big problem is unfunded liabilities, and they will have to cut their pensions. Can anybody tell me how loud French pensioners will scream when their pensions are cut? Or what French farmers will get up to when their subsidies are cut?

I am suggesting to you that there might be some political problems brewing in Europe. (We will deal with the implications of Brexit and European cohesion at the end of the letter.) So Europe is a weak link – but maybe not the weakest. Remember the Weakest Link TV program? The lady would run through the questions, and then with that sharp British accent, she would say to a contestant, “You are the weakest link,” and the player had to walk off in shame. The weakest link could be Europe, but it could also be China.

Xi Jinping is the most powerful Chinese leader since Deng Xiaoping and will likely be compared by historians to Mao Zedong and Sun Yat-sen in his importance. He has taken China by the neck and is wringing it. He has at least five more years left in his term – and note my use of the words at least. This is a man who has decided, “I am going to take China into the next century. I have a vision, and we are going to do it.”

To succeed, Xi has to rid the Chinese system of endemic corruption and cronyism and build a consumer society. The problem is that you don’t create a consumer society from the top down; you have to do it from the bottom up. I could give you tons of research on that. It’s a basic economic axiom.

So, China has problems. Their debt has just ballooned. Depending on whom you want to listen to, 40% to 80% of the last $6 trillion the Chinese borrowed went to pay interest on the debt they already had. In less polite circles we would call that a Ponzi scheme.

Now, they do have a lot of money. Yes. Can they print more? Yes. Do they want to have a New Silk Road? Do they want to be the world’s reserve currency? Do they want to be the most powerful country in the world? Of course they do. You get into private conversations with Chinese who are hard-core Chinese, and you can see their dreams. Their vision is not unlike the spirit of “Manifest Destiny” that moved the United States westward in the 1800s. We saw ourselves building an empire. The Chinese see themselves rebuilding their own ancient empire.

You don’t do that on the back of a weak currency – but then we come to the problem of a strong Chinese currency. Oh, by the way, their debt service is up to 30% of GDP, but that’s a detail that is mostly overlooked. (Please note more than a hint of sarcasm.)

Weak link number three is Japan. I have been talking about Japan for years. The line I coined six years ago is one that everybody tosses around now: “Japan is a bug in search of a windshield.” Japan is doing exactly what I said it would do in my book End Game five years ago and in Code Red over two years ago. It will get honorable mention in the next book.

Japan is monetizing its debt and putting it into the central bank. They are going to continue doing this at an astounding rate. I shorted the yen when it was at 100. I should have shorted it when it was at 90, because I was already writing about it then, but at the time I didn’t have the money or the testosterone. I was a lot happier when it was at 125 than now when it is back down to 102. One of the things I try to avoid when I place money with money managers is a “true believer.” A true believer’s certainties can take you over the cliff. But I must confess to being a true believer about the ultimate weakness of the yen. I still think 200 is a real possibility. For what it’s worth, I still have my money exactly where my mouth is. Only now, the cash value is back to where I started almost 2½ years ago. Oh well… We true believers are a hardy bunch. By the way, have I introduced you to some of my gold bug friends? And then there’s the survivalists. Just saying…

The Japanese have placed 30% of their total government debt on the balance sheet of their central bank. It is going to 70–80% – count on it, says the true believer. That is a lot of yen to put into the system, and that is what I think drives the ultimate valuation of the yen.

Emerging markets are the fourth weak link. How do they dig out? They borrowed $10 trillion in dollars that they have to pay back from income earned in their local currencies. Dollar valuation can create serious problems for their debt. And it happens at the worst possible time, during a crisis or global recession when the US dollar is the cleanest dirty shirt in the closet. The value of the dollar will rise at precisely the time when the profits and tax revenues of the emerging-market corporations and countries will fall.

Then there is a final weak link – and that is us, the US.

We are the most global, powerful, incredible, fabulous country in the history of the world. But here is our problem. When we next fall into recession, the deficit explodes to $1.3 trillion, even if we lose only the revenue we lost last time. If we have to add in the extra cost of safety nets, it’s $1.5 trillion minimum, plus the almost three quarters of a trillion dollars of “off-balance-sheet” debt. US total debt will be rising at over $2 trillion per year in short order.

All in, we are adding $2 trillion plus a year to an already huge total national debt. In five years we could be at $30 trillion debt. We are into 2020 and we are now facing $30 trillion in debt and people are going, “Whoa, what the hell are we doing?” You think there is angst today in the Tea Party?

Lacy Hunt is right: debt constrains growth. It constrains nominal GDP; and if we don’t get nominal GDP, we won’t get wage growth; we won’t get the labor participation rate up; we’ll get more of the gig economy; we’ll get a recession where we are back to 8–9–10% unemployment. People are going to be upset. Juan Williams may be right that Clinton is a shoo-in. That may be the best thing that ever happened to Republicans, because she will have to figure out what the heck to do, and she has no clue. Because it doesn’t make any difference which of these links breaks. We are all connected. The whole chain breaks.

When it breaks, the result is a global recession every bit as serious as the last one; it’s just different in its causes and effects. But there is a common denominator in each of the weak links mentioned above: Debt. And I do mean debt with a capital D. You can’t just wish debt away or declare a jubilee, because there are banks and pension companies and you and me on the other side of that debt. Somebody owns that debt, and that somebody is you and I in our pensions, in the insurance we buy, in the bond funds in our portfolios, in our foundations, our banks, and corporations. Those bonds silently permeate every part of our lives. Kill them and it all goes pear-shaped.

WWTFD

And so then you have to ask the question “WWTFD” – what will the Fed do? Well, I can tell you what I think they are going to do. The answer actually takes us back to my seminary days. This is one of the few times my theological education actually informs my economic views.

Cornelius Van Til was a Dutch theologian who came over to the United States, went to Princeton, got his PhD, taught at Westminster, and created a philosophical school called presuppositionalism. He said, if I know what your presuppositions are, if I know your true core foundational beliefs, I can tell how you are going to act. I can tell you what your values are; I can tell you who you are. I know how you will ultimately interpret the Scriptures. Your presuppositions determine how you act and work and think in the world.

If your presupposition tells you that the Bible says there are four corners of the earth and therefore the earth must be flat, your presupposition is that the world is flat; and so if you sail far enough you will fall off the end of the ocean. So you don’t go exploring. That’s what a presupposition will do. A presupposition does not mean that you’re right, but it’s what you believe.

What will the Fed do? They are going to pray.

The Fed is not that different, by the way, from the Oral Roberts tent revivals of my youth. How many of you people went to a tent revival? There are a few of us, okay. The rest of you won’t admit it. Oral (or pick your favorite evangelist) would stand there and he would say, “You’ve got to believe!” And you believed.

The Federal Reserve is sitting there and they are reading a book by John Maynard Keynes called TheGeneral Theory Of Monetary Employment, Interest, and Money. Their core belief, their presupposition, is that consumption is the key driver of the economy. I want to borrow an idea from David Rosenberg, who says that this is not the case. He has made the case that the driver of the economy is income. We were having that discussion in a bar one time, God knows where, and I have never forgotten it. Maybe his explanation squared with my own presuppositions. Because for me, that’s it, that’s the truth: income and production are the drivers; they are the keys. You must have production and entrepreneurship. Keynes was right about animal spirits, but it is not debt and consumption that drive animal spirits; it is profits or at least the potential for profits. Income drives the animal spirits. If I borrow money as an entrepreneur, it is because I thi nk borrowing will help me make more money.

So what are these guys going to do? Their economically religious presupposition is that deflation is the worst thing in the world. When you become a central banker, they take you into the back room; they do a DNA swap on you; and you become genetically, viscerally, aggressively opposed to deflation. You do anything you can to make sure deflation never happens on your watch. If that means negative rates, you have to think the unthinkable. If that means more quantitative easing, you keep right at it: you keep printing. That is what is happening in Europe and Japan, and it’s what has happened in the US.

Now here is the problem. I am not going to try to take you through this chart, but basically it shows the Fed’s predictions and what really happened. If we go back for the last 100 quarters with their predictions, they are zero for 100. It is statistically impossible to be worse. They have changed their models in three fundamentally different ways over the last 40 years – and, dear gods, every time it made things worse, not better.

The Fed has the smartest people in the room, all the PhDs from Stanford and MIT. I have never met a Fed economist who was not ten times smarter than I am. We’ve had some on the stage here. I mean, their credentials are intimidating; they drip knowledge and history.Lacy Hunt is the most intimidating of the former central bankers I know. I love him, but he is intimidating. He remembers every single paper he ever read in his entire life, and he can quote from them ad hoc; and he reads everything, while I read just a little bit.

So what is the Fed going to do? They are going to fight deflation, which is a corollary, a by-product of a global recession. They will see the Dragon of Deflation, and like St. George they will set about to slay that dragon. So will every other central bank. This is not just the Fed; it’s all their fellow central bankers, too.

And now we come to thinking the unthinkable.

Because, whether we land in a Trump world or in a Clinton world, when the Fed is trying to manage a recession, will the US let the rest of the world devalue against the dollar? No. We are going to have to think the unthinkable: that the government and the central bankers of the world’s reserve currency will actually try to manage the valuation of the dollar down, in ways that will boggle your mind. Quantitative easing and negative rates are just the beginning. Purposely weakening the dollar may be the stupidest idea we have ever heard of, and I am mentioning it to you on this stage because it is unthinkable. Yet it is no more unthinkable than negative rates were four years ago, or having $10 trillion on central bank balance sheets.

We get into an unthinkable world, and my mind comes back to the Alamo. Click here and you can hear the “El Deguello.” This was a song that was brought from Spain, and General Santa Anna played it for 13 nights at the Alamo. The translation is roughly “slit throat.” It was the song your bugler played to announce that you would give no quarter to the vanquished.

For 13 nights, the men in the Alamo heard this song saying, “We are going to kill you tomorrow,” and for 13 nights 150 men held out against 5000. Eventually they ran out of bullets, and they fought with knives and swords against bullets. They lost. I think that emerging markets are like those beleaguered few trying to hold the Alamo. Emerging-market central banks will eventually lose, too, because they are coming to a gunfight with a knife.

How do we avoid such a debacle? We have got to do something with the debt.

We may just declare some kind of debt jubilee, which I said above was crazy and unthinkable. But then again, when our backs are to the wall and we are offered a last cigarette and a blindfold, we may start thinking about alternatives.

Could we, the major developed countries of the world, all monetize our debts together – not separately, together – and recognize that we all allowed debt to go too far? We have to rationalize the whole system. We need to do it in a coordinated fashion so that no one major country gets an advantage in terms of currency valuation. It’s a controlled currency war. The smaller, emerging markets will be on their own. Sadly, that is my attempt at an optimistic approach to thinking the unthinkable.

I have absolutely zero confidence in any idea I have proposed in the last seven minutes. But I am telling you that they are all possible. Central banks and their governments have painted themselves into the mother of all corners, and they are going to paint themselves into more corners because their belief system and their presuppositions are fundamentally wrong.

I think they will continue to make the system worse until they have to do something drastic. At that point the only thing they will be able to do collectively is rationalize the debt. One country cannot do that without every country doing it, too. One country doing it alone creates a massive dislocation and a preference for its own currency, which devalues its currency. Without a collective devaluation, we will have currency wars that make the ’30s look like a spring picnic. Back then they were at least devaluing against something: they devalued against gold. Today there is no tether on our currencies.

So how then do we invest? The problem we have as investors is that there is nothing we can do except invest in the global markets. That is where we get global growth. That’s it.

I had this conversation with Harry Markowitz (the Nobel laureate who developed Modern Portfolio Theory) two months ago. We talked for an hour and a half, discussing MPT and diversifying portfolios; and my argument was that in the future diversifying among asset classes will be futile, because correlations will be going to one in a world turned upside down. In order to actually see performance, I maintained, we have to diversify among the trading strategies that we use to trade the asset classes.

You cannot afford to be passive and be long this and short that. That won’t produce results you will be happy with. But if you diversify among smart traders, you have a chance to get your assets from here to the other side. Harry just pointed out that what I was suggesting is still consistent with Modern Portfolio Theory; it’s just a different way of trading diversified asset classes.

You really do want to get to the other side of what I see as the coming crisis, too, because on the other side will be one hellacious bull market. Technology is going to take us to places we have never dreamed of. Three billion people are coming into the emerging-market middle classes, even if later rather than sooner. It is going to be a phenomenal world. You have just got to figure out how to get your assets from here to there.

Look, the Fed models don’t work. Yet for whatever reason, we somehow continue to accept that the Fed is smart enough to manage the most important price in all the world, the price of money denominated in the world’s reserve currency. Which is to say, they manage interest rates, which is basically the price of money. They do this based upon the models they create, which have never been right. They get nothing else right, and we think they can get interest rates right? They are going to screw it up, which is precisely what they have been doing for the past six years. We are in the beginning stages of the most massive monetary policy mistake in the history of the world, with the possible exceptions of Weimer Germany and Zimbabwe. But the implications are far more global now.

I am afraid that the one thing we can count on is that whatever policy the Fed chooses will be the wrong policy. They believe they can set the price of money and thereby balance demand and supply. Can anybody name me one instance where fixed prices worked in the real world, creating a paradise where supply and demand were balanced? They have manipulated the system and set the wrong price of money. They have created a world where savers are penalized, companies are paid to buy their competition rather than compete, and only the participants on Wall Street are rewarded with appreciation of their assets. My Austrian and monetarist economics school friends, who predicted inflation from all the QE that we saw, have actually seen inflation – it has just been in asset prices that benefited Wall Street and not Main Street.

And it’s not just a US problem. It’s Europe and Japan and anywhere in the world where interest rates and savers have been repressed.

Unless we see the central bankers of the world reevaluate their religious convictions about how monetary policy should be run, we are going to enter yet another period when the unthinkable becomes reality. And to be ready for it, and to potentially profit from it, you need to begin to think the unthinkable today.

Some Quick Thoughts on Brexit

It is way too early to draw any conclusions about Brexit, other than to talk in terms of general concepts and feelings, which I will briefly offer, but I promise a later letter that will go into the implications of Brexit in far more detail, after my researchers and I have looked at the issues in depth.

First, my good friend and fellow writer/thinker Barry Ritholtz reminded me of the wisdom of screenwriter William Goldman, from a century ago, talking about the world in which he lived, that “Nobody knows nothing.” If you think you know how Brexit is going to turn out, you probably have a presupposition that is clouding your thinking. This is unknown territory. There be dragons out there, but we have no idea whether they are good dragons or bad dragons. It depends on which near-future science fiction novel you’re reading. Because economics is getting ready to turn into science fiction.

Cameron resigned. Big shock (note sarcasm). I would have done the same, because who on God’s green earth would be so insane as to want to go through the next two years of negotiations with the EU? Talk about a way to age 20 years in the next two – and that will be the new prime minister’s role. Whatever the outcome, nobody will appreciate the work. Cameron is young enough that he can make a comeback if Brexit ends up looking like a bad decision. If it turns out to be a good decision, well, his daddy is rich and his ma is good-lookin’, and he can make a lot of well-paid speeches, sit on a lot of boards, do a lot of consulting, and make a ton of money. There are worse gigs. Ask Tony Blair. Or Bill Clinton.

The next prime minister (if and when they can find somebody masochistic enough to take the job) will notify the EU of his or her intentions along about October or November, probably. Then they have two years to negotiate the exit strategy. This is a classic equilibrium-theory, prisoner’s-dilemma situation. The longer the British take to come to an agreement with the EU, the more the other EU members realize they need Britain and its market, not to mention its monetary and banking prowess. But the longer the British take, the more uncertainty there is in the market; so the more problematic the situation becomes for their economy, as businesses have to make a decision about whether to move to Ireland or to the mainland to have unfettered access to EU markets.

And the EU would like to immediately punish Britain so that nobody else will want to leave. But then the United Kingdom just stalls, so it really is pointless for the EU to bluster and try to take quick action. But waiting allows those who want to call for referenda in other EU countries to take heart and plunge ahead.

What we will end up with is a massive multiplayer Nash equilibrium-theory game, whereby all players try to make their least-bad decisions. I want to make it clear: There are no good decisions that will make everybody happy. This is a divorce, and it’s pretty rare to see both parties to a divorce walk away totally happy. This is not going to be one of those rare instances. This is going to be a very ugly, nasty, brutal, lawyer-riddled, expensive divorce.

Which is why I have to think more about the implications of the process before just offering a lot of off-the-top-of-my-head comments. This is a game changer. But it’s just not quite clear yet how the game will be changed.

Okay, I see you asking for my reactions. I’m already getting those phone calls and emails. So, my first reaction is that this is the first domino in a series of dominoes that will create more referenda and embolden numerous separatist movements. I saw a poll in which 90% of the Dutch questioned wanted to have their own referendum. I have no idea what that actually means. What happens when Italy decides to conduct a referendum? Polar political opposites like the Lega Norde and the Five-Star Movement (which just captured the Rome mayoralty) would both generally vote for leaving the EU. That might constitute a majority in Italy. God knows what the EU would look like afterwards. Seriously, Brexit might actually precipitate a breakup of the EU before the debt issue can even go critical again.

This European situation is actually becoming as interesting as Game of Thrones. Forget the Kardashians, this is Reality with a capital R. Fortunes will be lost and made; every country will have to actually weigh the costs of staying or going – no more kicking the can down the road. Will Germany decide to pick up the costs and debts of the rest of the EU? Will Italy willingly enter into a long-term, deflationary recession, as Greece has done? That is the price they may pay to stay. Do you release the Krakens, otherwise known as the ECB and Draghi, to go after individual country debts to the detriment of Germany and the other northern and more vested nations? Do you actually think the Dutch or the Finns, not to mention the Austrians, will go along with such behavior? And do you think the Belgians, who have been on the verge of breaking up for several decades, can keep their emotions in one piece, just for the kids? Europeans live in interesting times.

Finally, Brexit is going to take some time to play out. From my perspective, it is not at all clear what the actual financial implications are. I wanted duly noted that I’m on record as saying many years ago that the pound would go to parity. Ditto for the euro, which I talked about rising to $1.50 in 2003 and falling back to a dollar over a few decades. I think we are on track. Those calls have been better than my Japanese yen call – so far.

What does Scotland do? We are already seeing calls from authority figures in both Scotland and Northern Ireland to hold additional referenda on leaving the United Kingdom. I think it makes sense for Northern Ireland to join with their Irish compatriots, which would have them once again back in the EU and allied with the far more prosperous Ireland. Scotland, on the other hand, has to decide if it wants to hop from the frying pan into the fire. If I were a thinking Scot (and are there any other kind? – just ask any Scot you know), I think I might want to see how the dust settles before I decide which way to jump.

Those are my personal observations for now. As I think about it, they are fodder for multiple letters. I have to admit that being a writer on economics and finance today is more fun than I would’ve ever possibly imagined. Not that what we’re getting ready to experience is going to be fun, but there’s just so much great material sitting out there in front of you. The writer in me is just salivating.

Austin, Las Vegas, and Maine

This is a rather magical few days for me. My Brexit party was over the top, since the vote turned out to be a nail biter for the first few hours. Those of you who didn’t tune into the BBC (my daughter had to tell me to get BBC on DirecTV) probably never saw the vote swing back and forth, and every now and then it would be literally 50-50. The conversations were exhilarating with what turned out to be a fascinating party guest list. More on that later.

I am off now to Austin to spend a long afternoon, evening, and following day with George and Meredith Friedman. George is in book-writing mode, which means he is manic and isolated. Meredith has declared that he will take a weekend off and invite some odd friends down – and I qualify as odd, though Shane is nothing but middle-of-the-fairway nice, which works very well with Meredith; and the two of them spend the bulk of their time trying to keep George and me in the middle of the road. Not an easy task. But it is not a thankless task, in that George and I are both grateful. We will have a lot to talk about, as we are both deep into working on new books. He is writing about the future of the US; I’m writing about the future of the world. I think we will find a few topics to discuss late into the night. Not to mention our growing business partnership and future plans.

I know, I said I’m not planning to leave Dallas until I finish my book; but Mark Skousen talked me into coming to his big libertarian blowout in Vegas, called FreedomFest. Since I’m not really doing a vacation this summer, I thought I could go and moderate a few panels with old friends like Steve Forbes and Rob Arnott. I have tons of friends coming to the conference, and I’ll also do a breakout speech that I’ve have been wanting to do for quite some time but that I know nobody will pay me to do, entitled “The Invisible Hand, Evolution, and Why I Am an Economic Atheist.” It will be a short speech on a topic I have thought about a great deal and am passionate about.

Shane and I will catch a few shows (I will once again see the Cirque du Soleil show called “Love,” featuring the music of the Beatles) and spend time with friends. I will even catch some of the other conference speeches and panels. You can see the lengthy list of speakers and topics by going to freedomfest.com. It happens July 13–16 at the Planet Hollywood casino. It is actually a fairly inexpensive conference and venue. I think there will be something like 2,000 attendees, representing all wings of the libertarian world. Trump spoke there last year, and I think Gary Johnson is speaking this year. If you are at the conference, my speech is on a Saturday afternoon, and I would appreciate your dropping by. And if you see me wandering around, walk over and say hello.

Post-conference I’ll be back home until the first week of August, when I will head to our annual Maine fishing trip with a bunch of unruly economists. Afterward, I’ll show up in New York for a few days. Then my calendar is travel-free until the middle of September.

I talked Neil Howe into staying over one more night and then took him to a restaurant called Javier’s in Dallas. Javier is a good friend, and his restaurant is a staple in the local dining circuit. It is actually Mexican cuisine as opposed to Tex-Mex. On the weekends you can’t get a seat without a reservation unless you want to wait a few hours. Since Javier has somehow arranged to have the only legal cigar bar in all of Dallas, more than a few people have been known to come and wait. The place is usually packed with local celebrities. If you come to Dallas, you should check it out. Ask for Javier’s special margarita. And the panella they make tableside is awesome.

Neil and I spent hours chewing over a variety of topics. The breadth of his factual knowledge sometimes just astonishes me. How does someone learn, let alone remember, that much historical trivia?

I truly recognize that I am one of the luckiest guys in the world. For whatever reason, I get to hang out and talk with an amazing cast of characters day in and night out, always learning and maybe offering my own humble idea every now and then, just to keep up the pretense that it’s actually a conversation rather than their giving me a lecture. You have to keep up the image, you know?

I stayed up and watched the BBC for a few hours after all the guests left, not something I normally do. But I was fascinated by the reactions of the people they were interviewing. You could see the utter shock and dismay of those who were on the Remain side of the vote, and the general quiet determination to move forward on the part of those who were for Leave – well, except for Nigel Farage, who was his typical over-the-top self, declaring June 23 to be England’s new Independence Day.

I went to bed and woke up still thinking about the implications of Brexit. Over coffee, I thought about the potential future of the US and how unless we do something our debt will become so overwhelming that it will lead us straight to our own deflationary depression. I could imagine myself waking up on some future morning, walking out onto my balcony and stretching, and shouting to the world, “God, I love the smell of Texit in the morning!” Just saying…

And with that it is time to hit the send button. You have a great week. And if you want to make it really great, click on the next link and listen to a young rock group called the Shelters. My biotech junkie friend Patrick Cox introduced me to them. He is always sending me a link to a new group, most of which I don’t “get.” This group blows me away.

This is the song Patrick sent along. It’s called “Birdwatching.” Listen, and then sample some of their other songs. They are a new group, and most of their YouTube pages have only a few hundred views; but trust me, they are the real deal.First new group I’ve heard in decades that, immediately, everything they do goes on my playlist. It’s like listening to Paul McCartney and the Beatles, the Moody Blues, the Doors, and a few other bands from my youth; but the Shelters have combined all of that into their own unique sound and original music. Seems Tom Petty found them, gave them free run of his studio, and tried not to screw them up, offering a few ideas here and there. Not a bad way to while away a lazy Sunday afternoon. And you can really say you heard them here first…

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.